Wednesday, 7 December 2016

Has
Turkish President Tayyip Erdoğan finally met his match? Does he now have an
opponent he cannot intimidate, he cannot fire, he cannot shut down, and he
cannot throw in jail? So far, the dreaded opponent foreign currency , also known as the U.S. Dollar, is resisting all his usual tactics.

He has resorted to the familiar
yelling, stamping his feet, blaming foreign interests, and threatening dire
revenge. Oh, he can rant and rave about the ‘tyranny of the dollar’, but this particular opponent pays no attention. Just
this year the Lira has lost about 18% of its value against the dollar. Over the last three months it is the worst
performing currency in the world against the US Dollar. The standard remedy for
this is to increase interest rates to make the Lira more attractive.

The 'enemy' that refuses to be intimidated

Not a pretty picture. Red line is the TL vs the USD since September 2016

But
Erdoğan refuses to allow that. The Central Bank is nominally independent. The
bankers may know better, but like every other bureaucrat in Turkey they are
powerless to counter the president’s wishes. He believes that high interest
rates limit economic growth. What he fails to appreciate is that a disappearing
currency does more damage to the Turkish economy than higher interest rates
could ever do.

How
bad is situation getting? “We’ve totally
lost it,” despaired one former senior official. “We have no monetary policy. Where’s the Central Bank? Where’s the
Ministry of Finance? Ultimately, he’s going to have to raise interest rates to
stabilize the currency. But I’m getting really tired of seeing the same movie
over and over again.”

Exchange bureaux are the busiest places in Turkey these days

A
leading economist put it even more bluntly. “We have a current account deficit and have to roll over $170 billion of
short term debt every year. Our only strength is being globally integrated in
trade and finance. Right now, we have reasonably smooth access to foreign
capital. If he wants to destroy that . . .”

Any
one over the age of 50 in Turkey can easily finish that sentence. All they have
to do is recall the horrible decade of the 1970s. In addition to rising
political violence there was a shortage of foreign currency which led, among
other things, to frequent power cuts and lack of fuel oil for heating. People
remember wearing overcoats in their offices because there was no heat. There
was no electricity to run elevators. A friend was working in a school where
they resorted to burning hazel nut shells for warmth.

All that changed in the 1980s with a
new currency regime that allowed easy access to much needed foreign currency
allowing the Turkish economy to grow rapidly. That access is now under serious
threat. And that threat has very serious consequences for the Turkish economy.
Why? Because every facet of the economy – from manufacturing, retail, tourism,
agriculture, to energy has become tied to the hated foreign currency.

Turkey has a strong manufacturing
base, but almost all the equipment in those factories is imported. Raw material
for much of Turkish industrial and retail sectors is imported. One company, for
example, makes fine woollen fabric, much of it for export. Where does the raw
wool come from? Australia and New Zealand. Every drop of oil, every cubic meter
of natural gas, every ounce of petrochemicals is imported. Turkish officials
boast of the export numbers. But the vast majority of those exports contains
goods, like the wool, that were first imported. In recent years, Turkish
companies have borrowed billions in foreign currency to fuel their growth. Why
foreign currency? Because in a world of zero interest rates it was cheaper than
borrowing in Turkish Lira. That was a good plan . . . as long as the Turkish
Lira remained stable. Now, however, these companies are faced with the massive
problem of finding much more Turkish Lira to buy the foreign exchange with
which to repay those loans.

The president now resorts to ‘jaw-boning’, lecturing everyone to
change their carefully hoarded foreign currency into Turkish Lira. The only
problem is that every time he does that the value of the TL sinks even further.
Then he says he is negotiating with Russia, Iran and China to change their trade
with Turkey from foreign currency into local currency. Tough to see this
working out well. Russia, for example, depends on exports of its massive
natural resources – all priced in US dollars by the way -- to get vital foreign
currency. The Turkish Lira does not qualify as a one of those vital foreign
currencies. Even if Russia did agree to accept Turkish Lira, the value of those
Lira would be tied to the US Dollar for every payment. So what would be gained?

Is he really going to accept TL for his precious natural gas?? Not too likely.

He does have some ‘nuclear’ options that would certainly
stop the Lira’s slide. But they would also stop everything else. About 50% of
the deposit accounts in Turkey are in foreign currency. He could force conversion of those accounts into TL. Drastic and very,
very painful for average Turkish citizens.

He could also institute some sort of
capital controls, limiting the movement of currency into and out of Turkey.
Disastrous for Turkish companies who rely on free movement of currency to run
their businesses. And what about those foreigners who invested hard currency in
Turkey? Can’t imagine them being very
happy receiving bags of Turkish Lira when they sell out.

Before inflicting ‘nuclear’ options on the long suffering
Turkish public the president might want to share just where he and his
ministers store their wealth. But no one should hold his breath for that bit of
transparency.

These steps are unlikely. But if the
currency continues to weaken and his rants about ‘evil foreign manipulation’ and the ‘interest rate lobby’ fail to stem the tide there is, unfortunately,
no telling what the president will resort to.

Saturday, 3 December 2016

I
have been more or less house-bound for the last two months while recuperating
from an operation to repair a torn Achilles tendon. The operation itself only
takes about 45 minutes, but the recuperation is long and tedious – filled with
sharp warnings from the doctor about slipping and winding up back on his table.
“It’s not that I don’t want to see you
again, but . . .” Time outside has been necessarily limited because of the
difficulty of manoeuvring first with a plaster cast and then with a cumbersome
‘walking’ boot and crutches. Just as well, because one doesn’t want to incur
the wrath of one’s surgeon by tripping on London’s uneven sidewalks and tearing
the tendon again. The thought of an acid “I
told you so” was enough to keep me indoors.

Your wife meanwhile picks up the slack by doing all the normal chores of shopping, cooking, washing, house cleaning, etc. plus sorting out all the bits of equipment that seem to accompany this recuperation and doing all the fetching and carrying I used to do. All you can do is smile sheepishly and make sure you've booked two tickets to the finest hotels in Paris once the whole process is over.

This would do very nicely, thank you

The
period started with the best of wholesome intentions. The ‘Great Novel’ was going to get finished. That lasted about a
day-and-a-half. Putting aside notes for the novel, the next great idea was to
improve my French. First, listen to various French programs on-line. Next, hire
a French teacher to come once a week. Alas, this is continuing, but the
mysteries of French irregular verbs still confound me. As for the accent? Well,
very polite Frenchmen nod their heads as if following every word before turning
to a friend asking if they understood just what I was trying to say.

OK,
so out come the Great Books on topics I should have read in university many
years ago. Time to catch up. Then there are on online lectures. I eagerly sign up
for one or two of those only to find that the professor giving these particular
lectures was a high-school classmate of my daughter. How to feel simultaneously
old and dumb. That’s OK. On to the books. Mary Beard’s entertaining history of
ancient Rome, SPQR, a new book on
Byzantium and Philip Mansel’s book on the sad fate of Aleppo. Then a real door
stop called Moscow 1937. Actually,
much more interesting than the name implies. All well and good, but after a
couple of hours of Cicero’s problems, the innumerable plots and counter-plots
of Byzantium, or Stalin’s endless purges my mind starts to turn to tapioca.

With the best of intentions . . .

Time
for a little light entertainment. So, we crank up the Kindle and order a long
list of international murder and mayhem books that pass for entertainment. That’s
fine, but after a while the plots sort of meld into each other and it’s easy to
lose track of just who is good or bad, or who is being targeted by yet another
dysfunctional super assassin. They’re also a bit like Chinese food. You finish
them quickly and are still hungry.

My
next cunning plan to pass the time was to tackle that long list of ‘useful’ DIY tasks that every home has. What
better time than during my enforced immobility?To be polite, my DIY skills
were somewhat lacking when I had two good legs, and probably hadn’t improved
with the cast and crutches. Nonetheless, we soldier on. Fortunately, after a few abject failures, a
very clever and skilled Slovenian plumber/electrician was able to repair the
damage.

Weapons of mass destruction

Oh
well, there’s always daytime television. Settling back in a comfortable chair
armed with the remote control and a cup of tea I start to graze through the
daytime TV offerings. Not an enlightening exercise. I used to think that
nothing in this world could equal the utter wasteland of American daytime TV. I
was hoping that in the UK, where they are always trying to set cultural
examples for the colonials, things might be a little better. Wrong, very wrong. Nothing
but mindless game shows, equally mindless talk shows and idiotic, so-called ‘celebrity’ shows, programs about people
looking for real estate in unlikely locations, and re-runs of programs that
should have been declared dead a very long time ago.

The Sahara desert has more life

Do British TV stations
have nothing better on offer than yet another re-run of WW II with the likes of
Dam Busters, Battle of Britain, and
other epics revealing British valour and genius against the evil Nazis? The war
ended more than 70 years ago. Surely there is something more timely on offer.
Forget the war, how about endless re-runs of ancient detective shows like Columbo, Miss Marple or the same cowboy
shows over and over again. John Wayne is OK. But morning, noon, and night? Time to move on. Then there’s the always
reliable BBC 4 that mercifully stays off the air until early evening. Then
you’re bound to be riveted by worthy shows detailing things like the sex life
of the anchovy. This is enough to drive anyone back to Stalin’s Moscow. By the
way, it’s not just British TV that is fixated with World War II. Shelves in
book shops groan with books on the Hitler period, but you will look in vain for
anything about post-war Germany, the transformation from pariah to powerhouse.

The ultimate remedy

After
all this, plus the exercises one is supposed to do plus the slimmed down menu your wife has diligently prepared you’re completely knackered by the end of the
day. Then you drift off to sleep with sweet dreams of Jimmy Buffet’s Cheeseburger in Paradise.

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About Me

I worked as a fund manager and investment banker in Turkey and the Middle East for 25 years. Over the years I have travelled extensively throughout the region and have met many of the leading government officials, business and cultural leaders. I am married to a Greek and now divide my time between London, Turkey, and an island in the Aegean.